>RUCHI SOYA INDUSTRIES LIMITED (ICICI DIRECT)

Planting profits!
Ruchi Soya Industries Ltd (RSIL) is the largest producer and supplier of edible oil and soya foods in India. With a strong brand portfolio comprising Nutrela, Ruchi Gold, Mahakosh, Ruchi Star, Sunrich, etc. RSIL has created a niche in the branded edible oil segment. It has a dominant market share of 11%, 17% and 22% in edible oil, palm oil and soya oil, respectively. With a rising share of palm oil consumption in India, RSIL is focusing on increasing its presence in the palm oil business. Capacity expansion of 1.2 MTPA in the refining segment and oil palm procurement rights for 169,000 hectares would enable the company to create an inflection point in its financial performance.

■ Large capacities, oil palm plantation to provide competitive edge
India imports ~60% of its edible oil requirement providing a competitive edge to a large player like RSIL, which has recently expanded its capacities to the extent of nearly 2x its nearest
competitor. It is venturing into the oil palm plantation business as part of its backward integration strategy, which provides an EBITDA margin in excess of 25%. The merger of its group company Mac Oil and acquisition of Palm Tech India provides access to 80,000
hectares of oil palm procurement rights with additional 89,000
hectares already available with RSIL for oil palm plantation in India.

■ Branded sales to gain momentum
Branded sales contribute 29.7% to the total sales of the company with Ruchi Gold constituting 35% of branded sales. With a rising standard of living, increasing health consciousness among people and health focused brands of RSIL, we expect branded sales to contribute 34% to total revenues by FY12E and register a CAGR of 25.4% over FY09-12E.

Valuations
At the CMP of Rs 121 per share, RSIL is trading at 12.1xFY12E earnings and 1.9x FY12E P/BV. We have valued the current business of the company at 10.7x its FY12E EPS of Rs 10 arriving at Rs 107 per share and valued the plantation business at Rs 26 per share through the net present
value (NPV) method and arrived at a target price of Rs 133 per share. We are initiating coverage with ADD rating and a potential upside of 9%.

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